Overview
A collateralized debt position (CDP) is a position where collateral is locked to mint a debt asset, such as DAI in MakerDAO. It enables over-collateralized stablecoins and loans. The position's health is tracked by its collateralization ratio.
How It Works
A user locks collateral and mints debt against it, subject to a minimum collateralization ratio. If the ratio falls, the position is liquidated. Repaying debt releases the collateral. The mechanism is transparent and on-chain.
Why It Matters
CDPs let users access liquidity without selling assets and back decentralized stablecoins. They demonstrate collateralized credit without banks. Their risk is collateral price volatility and liquidation.
Related Concepts
CDPs build on Collateral and power Crypto-Backed Stablecoins like DAI. They relate to Liquidation and Loan-to-Value.